James Pethokoukis

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The U.S. Congress, particularly the Senate, has been a graveyard for aggressive financial reform. And banks are hoping President Obama’s new bank levy will suffer a similar fate. They shouldn’t count it. A clever design and a determined White House push mean Wall Street may have to pay up.

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I recent sent a few email questions to Nicole Gelinas, author of the phenomenal must-read, must-own After the Fall: Saving Capitalism from Wall Street and Washington. Her answers were so thorough and valuable that I could not bring myself to cut them much. So I am running a question or two a day for the next several days. Enjoy!

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Labor unions are balking at President Barack Obama’s move to pay for healthcare reform by taxing their gold-plated health benefits. So Democrats are considering also taxing investment income. Not only would that approach make reform more costly and potentially worsen the U.S. fiscal deficit, it could politically doom the whole plan.

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The U.S. bank tax isn’t dead on arrival, amazingly. Congress, particularly the Senate, has been a graveyard for punitive financial reform. And banks are betting the new levy will suffer a similar fate. Don’t count it. A clever design, along with a determined White House push, means Wall Street may have to pay up. A few more points:

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U.S. cabinet members tend to lose their support the same way a person goes broke — slowly, then all at once. Timothy Geithner, the embattled U.S. Treasury secretary, still has President Obama’s confidence. Still, he has bled enough that this year could well be his last.

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Think of this: The U.S. government bailed the banks out with TARP. Then the banks repaid TARP last year, including the stock warrants that provided a handsome taxpayer profit from the banks. And now the government wants to tax them? In other words, help the banks get healthy, and then punish them? I don’t understand it.

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This compilation of opinion from the great Igor Volsky at the Wonk Room

- Ways and Means Chairman Charlie Rangel (D-NY): “Normally you’re just dealing with the Senate and they talk about 60 votes and you listen to them and cave in, but this is entirely different,” he said. “I’m telling you that never has 218 been so important to me in the House.”

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1) Let’s start with the idea that we’re going to tax banks based on “riskiness.” How on earth do we expect the government to assess this? The government has an absolutely awful track record when it comes to assessing risk. Before the crisis, regulators put in place mandatory capital requirements that they believed were “risk weighted.” The result was the massive over-indulgence in risky mortgage backed securities that almost destroyed the financial system. A risk tax would just result in new pressure for banks to adopt the regulatory view of risk. No thanks.